Private Finance's Weekly Mortgage Memo - 7th December 2020
This is our take on recent news in the mortgage market. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.
At a glance
- Solicitors struggling to keep up – Stamp duty holiday needs extending
- Christmas has come early for first-time buyers with the return of 90%
- New refurbishment product a sign that lenders faith in the housing market has been restored
Solicitors struggling to keep up – Stamp duty holiday needs extending
It is easy to forget about solicitors when discussing the housing and mortgage markets, but they play a critical part. We have heard that a number of firms are inundated at the moment and some have even resorted to doubling their prices or are not taking on any new business at all to stem the flow. The question is can they cope with this demand and enable buyers to beat the looming SDLT deadline? Arguably not, with high demand, lenders increased processing times and searches taking far longer than usual, it is likely that many transactions will not beat the deadline, with the potential for collapse…
- If the SDLT holiday is not extended it is likely that there will be thousands, if not tens of thousands of buyers out of pocket having paid valuation, legal and mortgage fees, search costs etc. and the potential for chain collapse affecting those selling and their plans.
- Moreover, if the holiday is not extended, we may see a significant drop in transactions, despite demand being high, more reason why an extension is required or long-term changes implemented.
Christmas has come early for first-time buyers with the return of 90%
As we predicted in a recent memo, with the strong growth in prices and demand in the housing market, it was not going to be long until lenders returned to 90% and once a few did the rest were going to follow. We had Accord first, followed by TSB and now we have Halifax and Virgin (with a 5-year offering rather than their 7), joining the likes of Nationwide, Metrobank and platform with more expected in the coming weeks. This is great news for borrowers with low deposits and first-time buyers, who are beginning to have options again, and if they act quickly they could (definitely not guaranteed) beat the SDLT deadline, however, as with all the lenders returning to this space thus far the rates are not the cheapest…
- The cost of borrowing at this level remains high, but ultimately competition drives down rates, especially with the cost of institutional borrowing remaining low, so we can expect rates to fall in the coming weeks. Lenders will be factoring in some decline in house prices and so are in effect pricing for a 95% LTV mortgage.
- More lenders in this space means increased capacity and this coupled with the natural slow down over the Christmas period should lead to improved processing times, however we suspect high LTV applications will continue to come under greater scrutiny.
New refurbishment product a sign that lenders faith in the housing market has been restored
Precise have recently re-launched a refurbishment buy-to-let product, that initially consists of a bridging loan that switches to a buy-to-let mortgage once the works are completed. A great product for investors who want to keep the financing simple and enables them to know project what the property will be valued at pre- and post-works for their cash flow. Investors can completely refurbish properties that they would otherwise be unable to purchase with mortgage debt, then quickly release funds once it is refurbished so they can move onto their next project and let the previous property.
- There are lots of bridging companies out there that would lend on purchase, but then after the works you would need to undertake a full application with another lender to refinance the property. This product reduces the hassle for the investor and more importantly also reduces the uncertainty… everything is lined up, including the legal side and underwriting, all that is required is a re-inspection of the property.
- This product is indicative that lenders faith in the housing market has been restored and that they are willing to take on riskier propositions again.
- This product is particularly beneficial to those who have bought properties at auction, that are in need of refurbishment to be suitable for mortgages, those who want to refurbish properties to maximise rental yields and properties purchased under market valuation.